EUR / USD
EUR/USD strengthened, edging above the 1.14 mark once again, primarily driven by a weaker US dollar. Recent eurozone data showing inflation dropping to 1.9% in May, below the ECB's 2.0% target, has not significantly dampened the euro's performance, as weaker US economic indicators, including disappointing ADP employment figures, continue to pressure the dollar. This has intensified the expectations that the Fed will cut rates more aggressively this year, with 56bps worth of cuts currently being priced in, up from 49bps just yesterday. The ECB's expected 25bps cut today is already priced in, so it is unlikely to cause significant volatility in the pair.
The technical outlook appears constructive, with the pair maintaining positions above major moving averages and showing particular resilience above the 50-day SMA at 1.123, while the current RSI reading of 58.0 suggests potential for additional gains. Market positioning reveals continued bearish sentiment toward the dollar, with structural factors like trade tensions and US fiscal concerns providing additional headwinds for the greenback over the longer term.
With the 50-day SMA supporting the pair from the technical perspective, we expect EUR/USD to cautiously trade higher in the meantime, eyeing the resistance level of 1.15.
USD / JPY
USD/JPY remained subdued, driven by disappointing US economic data, particularly the unexpected contraction in the ISM Services PMI to 49.9 against an expected 52.0 and weaker ADP employment figures. Bank of Japan Governor Ueda's cautious approach to monetary policy adjustments, indicated by a possible slowdown in bond purchases next fiscal year, has brought some stability to the yen. Meanwhile, the US is experiencing growing economic challenges, as evidenced by weak private sector employment data. The implementation of increased US steel and aluminium tariffs to 50% adds further complexity to the trading environment.
Technical indicators suggest the continuation of the bearish outlook, with the pair trading well below key moving averages, including 50- and 20-day SMA, which now converged at 144.70, further solidifying technical resistance. At the same time, the support at 142.10 appears robust, limiting downside potential for the pair. We expect USD/JPY to remain subdued in the meantime.
GBP / USD
GBP/USD remained resilient, supported by recent weakness in US economic data, including disappointing ADP employment figures and ISM Services PMI contraction, which has undermined dollar strength while bolstering Sterling's position. With the UK exempt from the 50% steel tariff, a more favourable trade relationship between the UK and the US is further supporting the pound compared to its European counterpart. The interest rate differential between the UK and the US favours the Sterling, with the BOE expected to implement a 42 bps cut this year, while the Fed is projected to implement a 56 bps cut.
From a technical perspective, GBP/USD's position above key indicators, including the 20-day moving average at 1.34 and the 50-day moving average at 1.3250, suggests further GBP/USD resilience. The pair's recent climb to 1.3548 indicates positive momentum, with potential for further gains if resistance at 1.359 is breached.
The upcoming US non-farm payrolls report could prove decisive for the pair's near-term direction, with economists anticipating a slowdown in job creation to 128,000 in May from 177,000 in April.
Economic Calendar
